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French Court Validates Most Of Anti-Tax Fraud Law

Monday, December 9, 2013

The French Constitutional Court has validated most of the Government's anti-tax evasion and major economic and financial crime bill, including notably plans to create the position of special financial prosecutor, responsible for complex cases of tax fraud. The Court nevertheless censured a number of articles provided for in the text, deemed to be unconstitutional.

Underlining the need to strengthen the fight against tax evasion, the Court validated the provision establishing an "aggravating circumstance" for the most serious types of fraud, together with virtually all measures intended to increase the powers and sanctions of the French Tax Administration.

As a result of the Court's decision, the sanctions for organized tax fraud will be more severe. Furthermore, the competencies of the tax police are to be enlarged. Special investigative techniques will be deployed in the case of organized or aggravated tax offences, including surveillance and phone tapping.

Moreover, the Court ruled that the Tax Administration will be able to make use of information received from a public authority, even if that information was passed to the public authorities illegally. New information will be transmitted to the authorities via financial regulators. The Court also stated that custodial sentences could be reduced in cases where perpetrators of, or accomplices to tax evasion alert the administrative or judicial authorities, and in so doing allow the authorities to identify other perpetrators and accomplices.

Finally, the Court agreed to allow the authorities to significantly increase fines for the non-declaration of trusts held abroad, and agreed that the Tax Administration's corporate tax audits could be dramatically strengthened.

However, the Constitutional Court nevertheless censured Article 3 of the law, stipulating that a maximum penalty of 10 or 20 percent is to be imposed on the turnover of an organization accused or charged for a crime or offence punishable with a minimum five-year custodial sentence, and where direct or indirect profit was procured. The Court deemed that that the provision violated the principle of proportionality of fines.

Further, the Court blocked Articles 38 and 40 of the legislation, providing that the country's Tax and Customs Administrations could request authorization from the judge for a home visit, on the basis of documents obtained either legally or illegally. The Court also rejected Article 57, providing that the Government could add to its so-called "black list" of states deemed "uncooperative" in tax matters (ETNC), countries that from January 1, 2016, have not and do not intend to conclude with France an administrative assistance agreement, with provision for an automatic exchange of documents.

The provisions are expected to enter into force in France in the next few days, following promulgation of the law.